Fighting Corruption Won’t End Poverty

On his recent trip to Latin America, Pope Francis declared that the corrupt deserve to be “tied to a rock and cast into the sea.” Perhaps they do; but that won’t necessarily make their countries more prosperous.

CAMBRIDGE – Countries are poor because governments are corrupt. And, unless they ensure that public resources are not stolen, and that public power is not used for private gain, they will remain poor, right?

Ricardo Hausmann, a former minister of planning of Venezuela and former Chief Economist of the Inter-American Development Bank, is Director of the Center for International Development at Harvard University and a professor of economics at the Harvard Kennedy School.

"Policemen may stop asking for bribes, but that will not make them any better at catching criminals and preventing crime." Yes, but that will automatically stop that specific crime plus add some extra utility for the citizens that do not have to bribe the police.

A probable cause for correlation's between poverty and corruption (or growth and transparency?) lack of importance in relative levels of development terms for growth speed, is that corruption is a phenomenon usually present throughout the social pyramid: it's officially public when the government does so, but it does need an accessory society to perpetuate its scams. Because of this assumption, the lacking on correlation between corruption and growth speed seems to relate to a structural concern, which by nature, takes longer to evidence. It would be interesting to analyze growth and transparency in the long term: considering countries with past history of heavy corruption, which have embraced transparency in their model / society vs. economic growth.

Thought provoking and essentially correct although when reading this it seems too pessimistic.

Being anti-corruption (I am a Trustee of Transparency International - UK) is well understood as not a stand-alone mechanism for alleviating poverty. Much more needs to be done. But, there are many areas where corruption directly leads to enormous ills.

One is in the area of pharmaceuticals - where corruption leads to death and greater illness as drugs are substituted by poor equivalents because the real drugs are syphoned to others; hospitals are ill-equipped because funds are taken elsewhere; equipment is not bought or cheap substitutes are provided to make up for the money lost through corruption.
Another area is defence and security - many examples show that corruption clearly engenders not just loss of the ability to defend oneself but can lead to such ill-equipped and demoralised service-staff that no defence is offered when terrorists strike - as in Northern Nigeria or Afghanistan (as so well shown by Sarah Chayes).
Certainly, there are many issues surrounding corruption and the ability of a nation to not just rid itself of a "bad" but to turn this into a "good". But, corruption is such a bad and has so many horrendous consequences that it is a shame to misread into it the first few sentences as direct consequences - without real logic (i.e. corruption leads to poverty so destroying corruption makes us richer). No-one argues this over-simplified case in the real world - corruption is vast and vastly complicated. Its impact is complex - within a state of real complexity. Its reduction (no-one really argues that it can be completely eradicated) can lead to positive change if changes are also made to culture and to systems. I think Mr Hausman understands this but the article could be read by some as being so pessimistic that preventing or stopping corruption was not worth the effort. I (and, fortunately, many others) beg to differ.

This is an interesting article. Poverty is as old as humanity and it is right to say that fighting corruption cannot end it. But the author did not say - Ending corruption won't end poverty.

We must look at the father here - Is it corruption or poverty? Poverty is the father, it gave birth to corruption. Today, it can be established that there are various types of poverty. Poverty of the mind is the most under reported and it is the main lead in poor judgement.

When you look at poverty and education there is a link, this does not mean education within the four corner of an established institution, but also "being informed". In most corrupt nations, it is easier to point to lack of education - people really don't care, they are not well informed, they don't bother to be informed, they don't have structured thinking, they don't ask necessary questions, they worship mediocre and all these point to poverty of the mind and inability to invest in SELF.

What we have found out is that majority are on the queue, waiting to join the oppressing club. When comparing poverty level in Ghana with Denmark, I don't think it is the right comparison.

Besides, most that write on corruption or anti corruption messiahs got is wrong big time and maybe that is why no one is winning the fight against corruption.

Change the mind set of the people and you have changed their life, best to educate the public on resource management, convince them the resources belong to them and their future, and their children that way, we might be on the path to educating a new generation of thinkers that will do the right thing.

your assessment of 'change the mind' is partly correct. Education does help in better reasoning. but this can take a generation or two before perceptible change is possible. Practically, in a democracy where govt (and philosophies) last five years, that may be too much for asking. Every subsequent generation since ages has been more educated the its predecessor but that has not eradicated or reduced corruption. Also, even if one were to agree and implement your purported solution for universal education, i doubt if it can overcome the basic human instincts like greed and fear (which in my opinion are one of primary factors driving corruption) and whether lower corruption instance can purely be statistically attributed to higher instance of education. I do agree that there is a direct relationship between education (awareness) and corruption but not to the recommendation that education could be a practical solution

The "good" versus "bad" distinction is a valuable nuance, yet it doesn't seem to get enough airtime.

Although, I do wonder whether the roles of cultural and organisation norms have a larger role in all of this than Ricardo emphasizes. I see a big difference between government organisations that aim - or are incentiveised by donor funding - to tick boxes (read "best practices") and those that are actually able and willing to internalize the norms necessary to achieve their organisations goals. As the article rightly highlights yet incorrectly stresses, it's likely easier to constrain a policeman from taking a bribe than it is to convince him/her to inherently and intrinsically "protect and serve". Yet its typically the latter that constrains us from moving from the "bad" to the "good"

So I think I'm going to remain pessimistic. The constraints and policies that can underpin norms (and those that can change civil servants root "identities") are significantly more embedded, more inertial, more contextual, and less understood than those available to tackle "bad" corruption.
As we see more countries pull away from "bad" corruption, I hope we do see a shift in donor and research focus towards the political/cultural/organisational nexus explaining identities and norms. But all this norms stuff is usually a bit "soft" for our usual economic rationals and sensibilities, so I remain a bit pessimistic about how easy and likely it will be to move from the "bad" to the "good".

If you plot the World Bank "Ease of Doing Business" against Transparency International's "Corruption Preception Index" (see http://www.heritage.org/index/book/chapter-4), there is a clear trend line showing a relationship.

Governments that make business hard encourage more corruption as businesspeople try to pay off government officials to be able to do business. You can try all the anti-corruption laws you want, if people can't make a living without paying a bribe, they will pay a bribe.

Lack of business freedom is also highly correlated with per capita GDP.

Show me a poor country that adopts the laws of Switzerland (ranked #5 in on the Index of Economic Freedom), and I suspect that country will not be poor for long.

The only Multinational organization that preceded The Church by 1000 years - The Sangha.
It is ironic that The Author brought in The Church in discussing Economic development.
At its roots The Sangha not only discharged functions of The Church - but The State as well.
Democracy perhaps itself was invented by The Sangha - given what we see in Athens today.
The role of The Sangha is perhaps best explained by The CCP in Beijing and The PAP in Singapore.
The State remains a mute spectacle as The DNA of The Sangha takes charge.
Arthashastra - The Science of Material Gain - functions cannot be outsourced or privatized.
The Sangha and and The State remain responsible and accountable.
And display the use of Global Finance for the benefit of the believers - State Capitalism.
Corruption or its absence indeed does not explain The Science of Material Gain.

Neither is Argentina. With a recently created body to prevent money laundering (Financial Information Unit, UIF for its initials in spanish) and very up-to-date laws, no real enforcement has been accomplished. Besides Institutions, enforcement and accountability are indeed needed.

I wonder if the decision distorting protocols apply in the case of increasing corporatisation of universities? It seems Prima facie, to be the case. Would love to know more on how management processes designed wi th good intentions end up strangling the core ideals they were designed to serve.

The Dalberg-Acton axiom defines the root of all corruption: homo-sapiens. "...power corrupts, absolute power corrupts absolutely."

Eradicating corruption is a simple matter of eliminating human stewardship over public authorities. Case in point: The US Tax Code. This is the engine of corruption which drives the most corrupt government on earth: ours. And the fiat Dollars our governing class depends upon for it's survival, pay (indirectly) people like Mr. Hausman to temporize over it.

There is demand for honest government. However, until our corrupt political, banking and monetary moguls are liquefied, and returned to the gangrenous swamp from whence they came, the rest of us will never get a whiff of it.

The issue with corruption and poverty the way I see it is rooted in the belief that corruption is a distortion, but making the distortion of real practice seems to be the trick. Too often politics gets involved in the decision making process, particularly for developing states, and what may be a seemingly harmless, standard practice turns into a BIG issue.

Also, and more importantly, this article in particular neglects the issue of corruption distorting actual best-outcomes and deliverables. Also, what form of corruption does the most harm.

Blocking a small contract worth $10 million, relatively speaking, means less in the frame of things that legislators blocking a free trade deal that may end up benefitting the public at large to protect a few banana farmers exports and domestic market worth $10 million.

Two brief points:
1) This article makes the case for Lee Kuan Yew's approach to governance in Singapore; and,
2) The Pope speaks of the spiritual poverty that informs the lack of "a shared sense of us" in the face of massive disparities among people and the looming threat to humanity posed by climate change. The term "dung of the devil" captures the material and spiritual dimensions of the corruption to which he refers.

It's true, Fighting corruption only won't end poverty. It requires so many composite strategy to end poverty.

1.Functional Literacy, that's required to keep pace with worldwide innovation or technological development.
2.Political Will 'that has a strong vision' to address faultlines at the soonest and bring reform wherever required.

I believe both the above are not stand alone points to justify :it includes composite engagement at different levels and people of a developing economy gradually shift their focus and shift their attitude in voting for eligible representatives :who can create vision for their country.

As economics is not 'static', political will can experiment different routes to improve functional literacy and encourage maximum newcomers to take part in 'nation building activities'!> New Economic Creation Endeavor is important in improving /or expanding a 'national economy'! without bothering about %age of failures.

This is another well though out observation by Dr. Hausman and much appreciation for his citing Andrews, Pritchett and Woolcock and their work. Protocol and political correctness are usually forced on errant governments from the outside and said governments often adopt them as a cloak while continuing sharp practices in another guise. Alas, this is also true in the United States at the state and local government level in those locales where residents are burdened by high taxes and poor payoffs. The advantage these domestic (U.S.) local governments have over Venezuela, Zimbabwe etc. is that they have access to a strong USA municipal finance market (which is mostly tax free for lenders). This allows the errant local and state governments to buy time. I believe when the next financial crisis hits the US, one of the major problems will be the discovery that many local governments (especially those with declining populations and tax bases) will have overextended through the benefit of low interest rates (which will be increasing) and the inability to further burden their populations with higher taxes. Greece redux? Let's hope for the best but I'm not encouraged.

Ricardo hausmann may be right or wrong depends on where you are from Im from KENYA every govt since Authoritarian rules of moi and jomo kenyatta we transitioned from one political party to multi democracy and new constitution with devolution every govt promised zero tolerance to corruption as activist david ndii says moi did goldernberg , kibaki anglo leasing and current govt no public project since taking power hasn't been without procurement cartels fighting it to the point anti corruption body officials were all sacked .this doesn't mean nothing is being done with new standard gauge railway and new roads being built but more people feel hopeless in the fight of corruption even in america jim rogers said politicians could be bought cheaply than today yet USA was extra ordinary country in 20th century after British empire collapsed so if fighting corruption cant end poverty is Niall furguson to six killer APPS OF PROSPERITY which focus on institutions ,competition ,scientific revolution ,work ethic,consumer society or RICARDO HAUSMANN THE REAL RAW MATERIAL OF WEALTH which focus more on adding competitive ability of A SOCIETY as by example Britain steam engine led to industrial revolution be the path to prosperity.AND DOES ANY OF THE TWO THEORIES EXPLAIN IF AND WHY CHINA WILL OVERTAKE AMERICA ECONOMY IN 21 ST CENTURY AS MANY BELIEVE

Ricardo Hausmann is right... because “corruption” encompasses so much more that what is ordinarily attributed to the term. For instance, fighting corruption, selling oneself as an anticorruption expert, might just be a more subtle form of corruption.

And what about intellectual corruption? Bank regulating bureaucrats, with their Basel Accord of 1988, decided that for the purpose of setting capital requirements for banks, the risk weight for loans to OECD sovereigns was 0% while the risk weight for OECD private sector was 100%. That, which favored bank credit to governments over bank credit to the private sector; and which implied that government bureaucrats were able to use bank credit more efficiently than the private sector… was that not a monstrous act of corruption?

And what if through corruption funds are diverted from those who do nothing or little with their funds for growth… to others who can really put those resources to work? How much of the world’s economic growth could have had its origin in an act of corruption? Anyone answering “little” to that question knows little about real life on Main Street.

As usual a great article by the best venezuelan economist in development economics. It is sad that other countries face worst state ineficient problems. But venezuela is one of the worst in terms of changing rules for everything to remain the same. On time we could prey to have R Hausmann as minister again. I think only him can restore Venezuela path and probably be an example for the whole region

Fascinating thesis damaged by inclusion of New Zealand on the improving corruption list. We have less corruption than most and this has been so for years. Makes one consider the validity of the thesis.

Alas, yet another falsely and showily attractive piece from Ricardo Hausmann, the inventor of such flashy terms as "original sin" and "dark matter" -- theology and cosmology used in service of economic journalism.
Any careful reading of the Pope's speeches to his home continent would have confirmed that his use of the word "corruption" was used in the wider, moral sense that had to do with throwing off the yoke of tyranny. Hausmann with his obsession with Chavez's Venezuela can think of only one kind of the tyranny, the kind that comes from the state. (And the fact that he is now an American he must share his countrymen's quaint obsession with overweening state power).
But Francis is talking about a much more pervasive kind of tyranny and corruption in today's world, one that comes from avarice, an individualism run amuck, an obsession with Mammon rather than Man, the result of which is rampant inequality. This is a theme on which Francis has been consistent.
Perhaps the time has come for less economics and more pastoralism!

Well "fighting corruption won't end poverty" but atleast it'll reduce poverty. How? Well to start with, fighting corruption will mean recouping monies from the wrong coffers to state coffers for investment which may fuel growth thereby reducing poverty. 2. It will include transparency, ensuring monies allocated for pro-poor projects are not diverted into private pockets. I live in Ghana and recently about $200 million allocated to the Savanah Accelerated Development Authority (SADA) to help fight poverty in the three regions of the north were squandered with nothing to show for. As i write this, not a single person has been prosecuted or jailed. The wrong lesson has been learnt by others that you can embezzle public money and go free depending on your political coloration. But $200 million could significantly reduce poverty in the north. Many NGOs are seriously working towards poverty reduction with less than $20,000 annual budget. So sir, fighting corruption will significantly reduce poverty if not end it.

Typically, an anti-Bolivarian Venezuelan writes a piece that could be titled "In defense of corruption". It's the futility argument exposed by Hirschman. How predictable.

Ending or drastically reducing corruption is no silver bullet. It's just how you begin to reform the state in order to increase its capabilities by enhancing transparency, which in turn allows more scrutiny from society, which in the long run, through the democratic process, increases the quality of elected officials, who have the skills and incentives to improve governance and reform the institutions and so on and so forth in a virtuous circle.

I understand why so many oligarchs and their minions would hate to see such processes started in Latin America. But eventually, they will happen, regardless of how many articles of praise to corruption they write.

I totally agree that the lack of a capable state leads indefinitely to corruption. However, your answer is misleading the veritable aim of the problem. If policemen stop asking for bribes, of course, will not make them better at catching criminals or preventing crimes. In fact, crime is not a cause of poverty. The richest countries are the ones that have the highest level of crimes (!). The real problem with the bad policemen is that the fact that they ask for bribes increases the cost of living, which is one major cause of poverty. For example, in poor (or underdevelopped) countries, when a cop ask for bribes to a transporter driving a truck full of goods from one city to another, the carrier in return will increase the price of each such as to compensate the amount of bribes that the policeman asked for. And if you generalize this situation the whole economic activiy of the coutries, the impact on the general level of prices is enourmous. Even for installing a simple electric counter has become a challenge. Why ? because agents of the company have developped a corrupt network so that it has become quite impossible to get a counter from the company while the same agents are the ones who control an underground network pretending to be more efficacious than the company but at a price 4 or 5 times more thant what the company would have charged you!
So by reducing corruption you heal the poor who are the most impacted by the uncotrollable inflation because they already have litlle.
However, the right question to ask, and that was my concern in the begining, is how to reduce corruption? to which the answer is clear (and that is where we both agree) by building a more capable state.

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